The big moment for smart cards in the United States finally arrived. Fleet Credit Card Services and Providian launched the first smart VISA cards during September. First USA will introduce its smart VISA card by year's end. smart VISA is VISA's answer to the American Express Blue Card. The AmEx Blue Card, the first general purpose smart card issued in the U.S., has signed up more than three million cardholders since its launch in Sept. 1999. AmEx expects to reach the four million card mark by the end of this year for the translucent Blue smart card. Providian is offering a clear plastic version of the smart VISA card. The new Providian smart card is being marketed around the "Clear" theme i.e. "Clear Advantage", "Clear Security", "Clear Problem Resolution", "Clear Satisfaction", and "Clear Future". Fleet Credit Card Services is offering its smart VISA card under the Fusion name.

One of the reasons for the push into smart bank credit cards is cost. Smart cards run about five to ten times the costs of a magnetic stripe card. Depending on the amount of the silicon wafer and the configuration, smart cards usually cost $5 and up. However, Gemplus, Sun Microsystems and VISA announced a pricing breakthrough for smart cards this summer. The three firms have developed a three dollar Open Platform smart card. The GemXpresso Lite smart card can host various combinations of applications, such as loyalty, secure Internet access and electronic purse, which can coexist alongside VISA's debit/credit payment applications. Open Platform also offers a dynamic downloading capability that enables applications to be securely loaded or removed from a card after it has been issued.  VISA says it has also negotiated other discounts with terminal and systems vendors to provide a complete multi-functional smart card solution that can be easily cost justified.

While the new smart VISA card primarily offers product positioning value to card issuers and little functionality to cardholders, the muscle behind the smart VISA card will undoubtedly push the technology into the U.S. marketplace. The three issuers initially issuing the smart VISA card control 20% of the marketplace. It is realistic that as many as six million Americans may hold a Clear, Fusion, AmEx Blue, or First USA general purpose smart card by this time next year. However Providian said its Clear smart VISA will be marketed initially to a limited list of potential customers, and by the end of the year to customers across the credit spectrum. Used in conjunction with a smart card reader connected to a PC, smart VISA cards have the ability to provide consumers with secure access to value-added content on Issuer web sites, to facilitate secure online payment, and ultimately, to enable cardholders to download enhancements to their cards via their PCs without ever having to get a new card. 

VISA also indicated it expects to extend the smart VISA brand to its debit and business card products. VISA also said that the Internet authentication offered by the new smart card, coupled with other to-be-announced initiatives, may lead to lower merchant chargeback and acceptance costs. While VISA does not require issuers to offer any additional applications other than chip payment on smart VISA, the most likely applications will be access and loyalty functions.

One of the new initiatives that may help push the smart VISA card is Verified By VISA. The new program, to be piloted in the first three months of 2001, will initially combat chargebacks for e-merchants and may eventually lead to a lowering of interchange fees for online transactions by effectively changing card-not -present transactions into card present transactions. Under the Verified by VISA program, cards with magnetic stripes or chips can be authenticated when used online. When a consumer is ready to complete an online purchase they will have the option of doing a Smart Checkout. With Smart Checkout cardholders simply insert their card into a card reader attached to their PC. Mag stripe cards require the cardholder to enter a password while cardholders with smart VISA cards do not need a password. The transaction is then authenticated by the card issuer's server. VISA says the Verified by VISA program will incent merchants to accept smart cards in the e-commerce environment by lowering chargebacks. VISA also indicated that Verified by VISA is a practical alternative to SET protocol, which has little support in the US.

MIXED  SIGNALS

Performance statistics for credit card-backed securities show mixed results across the board, with chargeoffs establishing new four-year lows for the third consecutive month, delinquencies rising for the first time in five months, and payment rates slowing slightly. Excess spread, meanwhile, remains healthy, benefiting from chargeoff improvements that have helped offset the impact of higher financing costs. The results show that while chargeoffs continue to test new lows, the rise in delinquency coupled with an unexpected spike in personal bankruptcy filings during August, points to higher chargeoffs for the fourth quarter. According to the latest Fitch Credit Card Performance Indexes, personal bankruptcy filings in August totaled 110,196 versus 92,563 and 103,603 in the month- and year-earlier periods, respectively. The result snapped a string of 21 consecutive year-over-year improvements in personal filings.  Year-date-filings now total 807,523, which is still more than 16% below 1999's pace. While the delinquency and bankruptcy results will push chargeoffs higher in the coming months, Fitch projects the chargeoff index will hold in the low-to-mid 5% range through year-end.

Meanwhile the FTC's Bureau of Consumer Protection is concerned about privacy and identity theft issues raised by the collection and use of personal financial data and other information in personal bankruptcy proceedings. The BCB says that, in light of the highly sensitive nature of the collected data, and the technological ease with which it can be used to facilitate identity theft, the Government should consider to what extent highly sensitive information, such as a consumer's social security number, must be included in public record data.  The BCP also recommends that the commercial use of personal bankruptcy non-public data be prohibited. Reportedly bankruptcy trustees are contemplating compiling such non-public data into centralized databases for commercial sale or use. The BCP says that use of such data would be outside the scope of the trustee's responsibilities, and may also breach the trustee's fiduciary duty.  Also the sale of detailed financial information may have implications under the Fair Credit Reporting Act.

NO-SHOWS

MasterCard recently announced it is changing its chargeback rules to help the hospitality industry fight no-shows. Under the new rules, lodging establishments will have the right to dispute chargebacks when they are received as a result of a guaranteed no-show. For example, when a cardholder claims they did not make a guaranteed reservation or claims they did not authorize the charge. Lodging merchants will now be able to submit documentation to MasterCard showing they obtained the cardholder's account number, card expiration date, name embossed on the card and address. They can also provide a reservation confirmation number at the time the guaranteed reservation was made in order to defend themselves against guaranteed no-show billing chargebacks. Historically merchants have had limited rights in disputing such claims. Consumers will also now be required to file their dispute in writing. The new changes are effective October 13, 2000, for MasterCard members and lodging merchants.

E-GO  VISA

Internet-centric credit cards have come to the Netherlands. Postbank in the Netherlands announced this month the launch of the E-go VISA credit card.  The new card will offer on-line, 30-second approvals. Postbank says cardholders will be able to check the account and recent transactions via the Internet.  Transaction data will be updated every 24 hours. Statements are only available via the Internet. The card will carry a 12.50 EURO annual fee. Internet-centric cards have been spreading through Europe. In the UK the battle has been particularly intense between Prudential's Egg VISA and Household's Marbles credit cards.